Underwritten by CASH AND TREASURY MANAGEMENT COUNTRY REPORT CHILE

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1 Underwritten by CASH AND TREASURY MANAGEMENT COUNTRY REPORT

2 Executive Summary Banking Banco Central de Chile (BCCH) is an autonomous institution under the Chilean constitution and is responsible for interest rate and foreign exchange policy as well as the management of exchange controls and international reserves. The main regulatory body for Chile s financial sector is the Superintendency of Banks and Financial Institutions. All capital transactions effected by residents in foreign currency must be reported to the central bank as well as foreign credit transactions denominated in Chilean pesos (CLP) that are payable in foreign currency. Reporting is also required for import and export-related payments above USD 5 million per annum. Resident and non-resident entities may hold local and foreign currency accounts within Chile, subject to holding the necessary certification of domicile and tax identification numbers. Accounts in CLP are convertible into foreign currency. Chile s stable and well-capitalized banking system has attracted considerable foreign investment. As well as nine domestic banks and seven cooperative banks, the banking system includes 11 foreign-owned institutions, either branches of foreign banks or foreign-controlled, which control around 43% of the country s banking sector assets. Chile s three largest banks Banco Santander Chile, Banco del Estado de Chile and Banco de de Crédito e Inversiones accounted for about 48% of total banking assets in April Payments Chile has four main clearing systems. High-value credit transfers are cleared either by the Sistema de Liquidación Bruta en Tiempo Real (LBTR), a real-time gross settlement system operated by the central bank, or Combanc s bank-owned net-settlement system. Low-value credit transfers and direct debits are cleared by the Centro de Compensación Automatizado (CCA), a bank-owned electronic clearing house. Checks are cleared electronically by The National Clearinghouse for Checks and other Documents in Local Currency. The check is still by far the most common non-cash payment instrument in Chile, but the introduction of high and low-value clearing systems for electronic instruments such as credit transfers and direct debits has driven volumes significantly higher in recent years, to the detriment of checks. Payment cards are also increasingly common. Liquidity Management There are a number of restrictions on movements between accounts that limit the scope for sophisticated liquidity management techniques; however, zero-balancing is available for accounts held in the same currency. Resident and non-resident accounts may participate in a single liquidity management structure. Notional pooling is not permitted. Go to Contents page 2

3 Trade Finance Chile has established an open and transparent trade policy, supported by a large number of trade agreements both regionally and globally. Import and export activities are restricted to resident and juridical persons. June 2018, AFP Country Profiles. The material provided by PNC Bank, National Association (PNC), the Association for Financial Professionals (AFP) and AFP s contracted information supplier is not intended to be advice on any particular matter. No reader should act on the basis of any matter provided by PNC and AFP and AFP s contracted information supplier and third party suppliers in this document without considering appropriate professional advice. PNC, AFP and AFP s contracted information supplier expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document. The information provided is frequently subject to change without notice. The data and software are provided AS IS without any express or implied warranty of any kind including, without limitation, warranties of non-infringement, merchantability, or fitness for any particular purpose. PNC, AFP, and AFP s contracted information provider do not represent or warrant the information contained in this printed report, on this web site or on referred sites or sites accessible via hypertext links is complete or free from error and expressly disclaim and do not assume any liability to any person for any loss or damage whatsoever caused by errors or omissions in the data or software, whether such errors or omissions result from negligence, accident, quality, performance of the software, or any other cause. All rights reserved. No part of the material provided by PNC, AFP and AFP s contracted information supplier and third-party suppliers may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of AFP and its contracted supplier. Go to Contents page 3

4 PNC s International Services PNC can bring together treasury management, foreign exchange, trade finance and credit capabilities to support your international needs in a coordinated and collaborative way. International Funds Transfers International Funds Transfers to over 130 countries in USD and foreign currency can be accessed through PINACLE, PNC s top-rated, online corporate banking portal. Multicurrency Accounts Set up demand deposit accounts that hold foreign currency instead of U.S. dollars. These accounts offer a simple and integrated way to manage and move money denominated in more than 30 currencies, including offshore Chinese Renminbi. You can easily view deposit and withdrawal details through PINACLE. PNC Bank Canada Branch ( PNC Canada ) PNC Bank, through its full service branch in Canada, can help you succeed in this important market. PNC Canada offers a full suite of products including payables, receivables, lending, and specialized financing to help streamline cross border operations. Multibank Services PNC s Multibank Services provide you with balances and activity for all your accounts held with PNC and other financial institutions around the world. PINACLE s Information Reporting module can give you a quick snapshot of your international cash position, including USD equivalent value, using indicative exchange rates for all your account balances. You can also initiate Multibank Transfer Requests (MT101s), and reduce the time and expense associated with subscribing to a number of balance reporting and transaction systems. Establish accounts in foreign countries Establishing good banking relationships in the countries where you do business can simplify your international transactions. PNC offers two service models to help you open and manage accounts at other banks in countries outside the United States. QQPNC Gateway Direct comprises an increasing number of banks located in many European countries and parts of Latin America. PNC s team will serve as a point of contact for setting up the account helping with any language and time barriers and will continue to serve as an intermediary between you and the bank you select. You can access reporting and make transfers via PINACLE. QQPNC s Gateway Referral service can connect you to a correspondent banking network that comprises more than 1,200 relationships in 115 countries. Foreign Exchange Risk Management PNC s senior foreign exchange consultants can help you develop a risk management strategy to mitigate the risk of exchange rate swings so you can more effectively secure pricing and costs, potentially increasing profits and reducing expenses. Trade Services PNC s Import, Export, and Standby Letters of Credit can deliver security and convenience, along with the backing of an institution with unique strengths in the international banking arena. PNC also provides Documentary Collections services to both importers and exporters, helping to reduce payment risk and control the exchange of shipping documents. We assign an experienced international trade expert to each account, so you always know your contact at PNC and receive best-in-class service. And PNC delivers it all to your computer through advanced technology, resulting in fast and efficient transaction initiation and tracking. Trade Finance For more than 30 years, PNC has worked with the Export-Import Bank of the United States (Ex-Im Bank) and consistently ranks as a top originator of loans backed by the Ex-Im Bank both by dollar volume and number of transactions. 1 Economic Updates Receive regular Economic Updates from our senior economist by going to pnc.com/economicreports. (1) Information compiled from Freedom of Information Act resources. 4

5 PNC and PINACLE are registered marks of The PNC Financial Services Group, Inc. ( PNC ). Bank deposit and treasury management products and services are provided by PNC Bank, National Association, a wholly-owned subsidiary of PNC and Member FDIC. Lending products and services, as well as certain other banking products and services, may require credit approval. In Canada, bank deposit, treasury management, equipment financing, leasing and lending products and services are provided by PNC Bank Canada Branch. PNC Bank Canada Branch is the Canadian branch of PNC Bank, National Association. Deposits with PNC Bank Canada Branch are not insured by the Canada Deposit Insurance Corporation. Foreign exchange and derivative products are obligations of PNC Bank, National Association. Foreign exchange and derivative products are not bank deposits and are not FDIC insured, nor are they insured or guaranteed by PNC or any of its subsidiaries or affiliates. This AFP Country Report is being provided for general information purposes only and is not intended as specific legal, tax or investment advice or a recommendation to engage in any other transactions and does not purport to comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively your own risk The PNC Financial Services Group, Inc. All rights reserved. 5

6 Contents Executive Summary...2 PNC s International Services...4 Financial Environment...9 Country Information Geographical Information...9 Business Information...9 Country Credit Rating...10 Economic Statistics Economics Table...11 Sectoral Contribution as a % of GDP...12 Major Export Markets...12 Major Import Sources...12 Political and Economic Background...13 Economics...13 Interest Rate Management Policy...13 Foreign Exchange Rate Management Policy...13 Major Economic Issues...13 Politics...14 Government Structure...14 Major Political Issues Taxation...15 Resident/Non-resident...15 Tax Authority...15 Tax Year/Filing...15 Corporate Taxation...15 Real Estate Taxes...16 Withholding Taxes (Subject to Tax Treaties)...16 Tax Treaties / Tax Information Exchange Agreements (TIEAs)...17 Transfer Pricing...18 Tax Rulings...18 Thin Capitalization...18 Stamp Tax...19 Capital Duty/Municipal Licence Fee...19 Cash Pooling...19 Sales Taxes/VAT...19 Financial Transactions / Banking Services Tax...19 Capital Gains Tax...19 Payroll and Social Security Taxes Cash Management...21 Banking System...21 Banking Regulation

7 Banking Supervision...21 Central Bank Reporting...21 Exchange Controls...22 Bank Account Rules...23 Anti-money Laundering and Counter-terrorist Financing...23 Banking Sector Structure...24 Major Domestic Banks...24 Overall Trend...24 Payment Systems Overview High-value...27 Low-value Payment and Collection Instruments...31 Overview and Trends...31 Statistics of Instrument Usage and Value...31 Paper-based...31 Checks...31 Electronic...32 Credit Transfer...32 Direct Debits...32 Payment Cards...33 ATM/POS...33 Electronic Wallet...33 Liquidity Management Short-term Borrowing Overdrafts Bank Lines of Credit / Loans Trade Bills Discounted Factoring Commercial Paper Bankers Acceptances...35 Supplier Credit...35 Intercompany Borrowing, including Lagging Payments...35 Short-term Investments...35 Interest Payable on Bank Account Surplus Balances...35 Demand Deposits Time Deposits...35 Certificates of Deposit...35 Treasury (Government) Bills...35 Commercial Paper Money Market Funds Repurchase Agreements Bankers Acceptances

8 Liquidity Management Techniques Cash Concentration Notional Pooling Trade Finance General Rules for Importing/Exporting...37 Imports...38 Documentation Required...38 Import Licenses...38 Import Taxes/Tariffs...38 Financing Requirements...38 Risk Mitigation...38 Prohibited Imports Exports Documentation Required Export Licenses Export Taxes/Tariffs Proceeds Financing Requirements Risk Mitigation Prohibited Exports Information Technology...40 Electronic Banking...40 External Financing...41 Long-term Funding...41 Bank Lines of Credit / Loans...41 Leasing...41 Bonds...41 Private Placement...41 Asset Securitization / Structured Finance...41 Government Investment Incentive Schemes / Special Programs or Structures Useful Contacts National Investment Promotion Agency Central Bank Bank Supervisory Authority Banks Stock Exchange Ministry of Finance Ministry of Economy Chamber of Commerce Bankers Association

9 Financial Environment Financial Environment Country Information Geographical Information Capital Santiago Area 756,102 km 2 Population Official language Political leaders million Spanish Head of state and government President Sebastián Piñera (since March 11, 2018) Business Information Currency (+ SWIFT code) Business banking hours Chilean Peso (CLP) Business hours: 08:00/09:00 17:00/18:00 (Mon Fri) Banking hours: 09:00 14:00 (Mon Fri) Bank holidays 2018 July 2, 16, August 15, September 17 19, October 15, November 1, 2, December 8, 25, January 1, April 19, 20, May 1, 21, June 29, July 16, August 15, September 18, 19, 20 October 12, 31, November 1, December 8, 25, January 1, April 10, 11, May 1, 21, June 29, July 16, August 15, September 18, 19, October 12, 31, November 1, December 8, 25, 31 Source: International dialing code

10 Financial Environment Country Credit Rating Fitch Ratings last rated Chile on February 23, 2018 for issuer default as: Term Issuer Default Rating Short F1 Long A Long-term rating alert Stable Source: June

11 Financial Environment Economic Statistics Economics Table GDP per capita (USD) 15,252 15,761 14,568 13,383 13,791 GDP (CLP trillion) GDP (USD billion) GDP volume growth* (%) BoP (goods, services & income) as % GDP Consumer inflation* (%) Population (million) Unemployment (%) Interest rate (local currency MMR) (%) Exchange rate (CLP per USD) Q2 Q3 Q4 Year Q1 GDP per capita (USD) NA GDP (CLP trillion) NA GDP (USD billion) NA GDP volume growth* (%) NA NA NA NA NA BoP (goods, services & income) as % GDP NA Consumer inflation* (%) Population (million) NA Unemployment (%) NA NA NA Interest rate (local currency MMR) (%) NA Exchange rate (CLP per USD) *Year on year. Period average. Market rate. Source: International Financial Statistics, IMF, June 2018 and 2017 Yearbook. 11

12 Financial Environment Sectoral Contribution as a % of GDP Agriculture 4.4% Industry 31.4% Services 64.3% (2017 estimate) Major Export Markets China (28.6%), USA (14.1%), Japan (8.6%), South Korea (6.9%), Brazil (5%) Major Import Sources China (24.3%), USA (14.7%), Brazil (9.3%), Argentina (4.4%), France (4.2%) 12

13 Financial Environment Political and Economic Background Economics Interest Rate Management Policy Interest rate policy is determined by the Central Bank of Chile (Banco Central de Chile), which is an autonomous institution under the Chilean constitution. The core responsibility of the central bank is to keep inflation low and stable. Foreign Exchange Rate Management Policy The exchange rate of Chile s official currency, the Chilean peso (CLP), is free floating. The central bank formulates foreign exchange policy is formulated by the central bank, which also has responsibility for managing exchange controls. The central bank is permitted to intervene in the foreign exchange market in exceptional circumstances. Major Economic Issues Chile has an open and fast-developing economy, supported by successive governments commitment to free market policies and trade liberalization. The performance of the Chilean economy has also been buoyed by higher copper prices in recent years; Chile produced 27% of the world s total mined output of copper in 2016, according to state copper commission Cochilco. Chile is an associate member of the Mercosur trade group and a member of the Latin American Integration Association (LAIA), and has signed bilateral trade agreements with a number of countries, including the USA, China and Japan. A marked increase in foreign investment and a burgeoning financial sector has also helped boost the economy. Given the economy s dependence on copper (Chochilco and Chile s General Directorate of International Economic Relations (Direcon) figures show copper accounted for 9.2% of GDP and 46% of exports in 2016), a fall in the copper price has affected the wider Chilean economy, resulting in GDP growth slowing to 1.3% in 2016, the worst performance since 2009 and down from 2.3% in The economy grew 1.5% in 2017 and is expected to expand by between 3% and 4% in 2018 as copper prices rebound and investment recovers gradually. In January 2017, the Central Bank of Chile cut its benchmark interest rate from 3.5% to 3.25%, the first reduction in over two years, as inflationary pressures dissipate and the Chilean economy continues to weaken amid falling copper prices. The central bank has cut the rate three times since then, to 3% in March, 2.75% in April and 2.5% in May Inflation increased slightly from 1.8% in March 2018 to 1.9% in April 2018, still below the government s 2% to 4% target range. The Central Bank has forecast year-end inflation of 2.3% in The government has had some success in reducing poverty over recent years, although there is still significant uneven wealth distribution. 13

14 Financial Environment Politics Government Structure Chile is a presidential republic. Executive Chile s president is directly elected to a four-year term and the next election is scheduled to be held in November Legislature Chile s legislature is the National Congress (Congreso Nacional), which consists of the Senate (Senado) and the Chamber of Deputies (Cámara de Diputados). The Senate s 38 members are directly elected every eight years. Designated senators and life membership of the Senate were phased out in March The 120 members of the Chamber of Deputies are elected every four years. Elections to the Senate and the Chamber of Deputies will be held in November International memberships Chile is an associate member of Mercosur, the Latin American Integration Association (LAIA) and a member of the WTO (World Trade Organization). Major Political Issues Sebastián Piñera, of the conservative National Renewal party, was elected president for a second time in December He took office on March 11, 2018, inheriting a stagnated economy and a large fiscal deficit from former president Michelle Bachelet, who could not run for reelection. Although Ms. Bachelet had begun ambitious reforms to make the political system more democratic, to guarantee free higher education, to empower labor unions and have the wealthy pay higher taxes, she ended her term with high disapproval rates. Sebastián Piñera, who has the support of the business community, has promised to cut taxes and to rein in the reforms brought in by former President Bachelet. However, in June 2018, Mr. Piñera, whose first term as president was marred by students demands for better education and protests against inequality, said that his administration will maintain corporate tax at current levels to help finance the country s education, health and pension systems as it struggles to keep the government s growing fiscal deficit under control. As well as improving public finances, the Piñera administration faces a number of challenges, including translating economic growth into sustained social welfare and implementing reforms in partnership with a fragmented congress, where his government lacks a majority. 14

15 Financial Environment Taxation Resident/Non-resident A company is considered resident in Chile if it is incorporated there. Tax Authority Chilean Internal Revenue Service. Tax Year/Filing The tax year corresponds to the calendar year. Self-assessed corporate income tax returns must be filed by April 30 of the year following the previous calendar year. Taxes are payable when submitting the annual tax return, but taxpayers are subject to monthly advance payments during the course of the year. Any difference between the advance payments and the final assessment is settled at the time of filing the tax return. Chilean entities may not file consolidated returns, although some de facto consolidation methods exist. Corporate Taxation Resident companies are subject to taxation on their worldwide income. Non-resident companies are taxed on income sourced in Chile. Dividends distributed between Chilean companies are not taxable. As of 2017, two new income tax regimes are applicable: the fully integrated regime (also referred to as the attributed income regime ) or the partially integrated regime. The applicable regime depends on the type of entity, and certain default presumptions apply if an entity eligible for either regime has not opted into a regime. Chilean entities that are not owned exclusively by persons subject to final taxes (i.e. individuals resident in Chile and/or individuals or entities that are not resident in Chile) generally are not eligible for the fully integrated regime. Corporate income is taxed in two stages. The first-category tax arises when income is accrued. The second stage is incurred on the part of the profits distributed to shareholders/partners abroad or to individual partners/shareholders resident/domiciled in Chile. First category income tax is imposed at a rate of 25% under the fully integrated regime. Under the partially integrated regime, the rate is 27% as from 2018 (increased from 25.5%). In addition to the corporate income tax, either the global complementary income tax for individual residents or the additional withholding income tax for non-resident entities and individuals must be paid. 15

16 Financial Environment Shareholders of Chilean entities subject to the fully integrated regime are taxed when profits are accrued by the Chilean entity, irrespective of whether a dividend is actually paid. Individual resident shareholders are subject to a global complementary income tax rate at progressive rates that range from 0% to 35%. Non-resident/non-domiciled shareholders are subject to an additional withholding income tax of 35%. The corporate income tax paid on the profits attributed to the shareholder is creditable against the global complementary income tax/additional withholding income tax. Dividends paid out of profits previously attributed to the shareholders will not be subject to further taxation. Dividends paid by Chilean entities subject to the partially integrated regime to resident individuals are subject to a global complementary income tax at progressive rates that range from 0% to 35% (distributions between Chilean entities that prepare full accounting records generally are not subject to income tax). Profits distributed abroad to non-resident/non-domiciled taxpayers are subject to an additional withholding income tax of 35%. For both resident and non-resident shareholders, 65% of the corporate income tax paid on the profits distributed is creditable against the final tax payable, except for shareholders domiciled in country with which an active tax treaty with Chile is in place, for which 100% of the corporate income tax is creditable. Under a temporary measure in force until December 31, 2021, shareholders from countries with which a tax treaty with Chile was signed before January 1, 2019 also will be entitled to a 100% credit, even if the treaty has not entered into force. There is no alternative minimum tax. Tax losses may be carried back until all retained taxable profits are absorbed and may be carried forward indefinitely. Tax losses are non-transferable and may be used only by the taxpayer that incurred the losses. Preferential tax regimes are available for businesses operating in specific regions and/or carrying out specific activities. Real Estate Taxes Real estate tax is imposed at an annual rate of 1% on rural property and 1.2% on developed nonrural property. Non-residential property is subject to an annual rate of 0.98% on the cadastral value up to about USD 120,000 and 1.143% on the excess. Surcharges may apply. There is no transfer tax payable on the sale of real estate. Withholding Taxes (Subject to Tax Treaties) Payments to: Interest Dividends Royalties/ Fees Technical Fees Branch Remittances Resident companies Non-resident companies None None None None NA 4% / 35% 35% 15% / 30% 15%/20% 35% 16

17 Financial Environment Payments of interest, dividends and royalties between entities resident in Chile are not subject to withholding taxes. Interest is subject to a 35% additional withholding income tax on the gross amount. A 4% reduced tax rate applies, inter alia, to interest on loans granted by a foreign bank or foreign/international financial institution and by an insurance company or pension fund that complies with certain registration requirements, provided the lender and borrower are unrelated. If the parties are related, the thin capitalization rules must be observed. Profits repatriated to a parent company abroad are subject to a 35% additional withholding income tax, against which the corporate tax (first category income tax) paid is creditable. A 15% additional withholding income tax applies to payments made to non-resident/nondomiciled persons without a permanent establishment in Chile for technical and engineering works and professional or technical services that a non-resident/non-domiciled individual expert in a science or technique renders (in Chile or abroad) through advice, a report or a plan. The rate is increased to 20% if the parties are related and/or the beneficiary is resident in a tax haven jurisdiction included in a list issued by the Chilean treasury. Services rendered abroad, other than technical services, etc., are subject to a 35% additional withholding income tax. Royalty payments by the end user (no commercial exploitation) for the use of shrink-wrapped software are exempt from withholding tax. Payments for the use, enjoyment or exploitation of invention patents, computer programmes, utility models, industrial design and drawings, blueprints or topography of integrated circuits, and of new vegetable varieties, are subject to a 15% additional withholding income tax. The rate increases to 30% if the parties are related and/or if the income beneficiary is resident in a listed tax haven or in a jurisdiction with a preferential tax regime. Royalty payments in respect of trademarks, patents, formulae and other similar services are subject to a 30% additional withholding income tax.. A 35% additional withholding income tax applies to the remittance of profits attributable to a branch. The taxable event depends on whether the branch is subject to the fully integrated regime or the partially integrated regime. Under the fully integrated regime, the 35% tax applies when the profits are accrued, with credit granted for the 25% first category income tax paid by the branch. Subsequent remittances to the head office are not subject to further taxation. Under the partiallty integrated regime, the 35% tax applies to the remittances of profits to the head office, with full or partial credit granted for the first category income tax paid by the branch, depending on whether the head office is a tax treaty country. Tax Treaties / Tax Information Exchange Agreements (TIEAs) Chile has exchange of information relationships with 36 jurisdictions through 33 double tax treaties and four TIEAs ( March 2018). 17

18 Financial Environment On January 27, 2016, Chile, as part of the OECD/G20 Base Erosion and Profit Shift (BEPS) initiative, signed a multilateral co-operation agreement with 30 other countries ( the MCAA ). Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on some key indicators of economic activity within multinational enterprises (MNE). With Country-by-Country reporting tax administrations of jurisdictions where a company operates will have aggregate information annually relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in. The information will be collected by the country of residence of the MNE group, and will then be exchanged through exchange of information supported by such agreements as the MCAA. First exchanges under the MCAA will start in on 2016 information. There are currently 98 signatory countries, including:- QQ Argentina, Australia, Austria, Belgium, Brazil, Canada, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, India, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, Nigeria, Norway, Poland, Portugal, Russia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and United Kingdom. Transfer Pricing The tax authorities may challenge and reassess transfer prices between related parties where the terms and conditions of transactions are not conducted at arm s length. Country-by-country reporting is required for certain multinational groups with a Chilean resident parent or other Chilean resident group. Transfer pricing rules are in line with the OECD guidelines and enhance the Chilean tax authorities ability to adjust prices in related-party transactions. The following methods may be used: comparable uncontrolled price; resale price; cost plus; profit split; comparable profit split; and residual methods. Tax Rulings Guidance may be obtained from the tax authorities on the tax consequences of a planned transaction. Thin Capitalization Thin capitalization rules apply to related party loans, the interest on which: is subject to the reduced 4% additional withholding tax rate on interest paid abroad (i.e. loans granted by foreign 18

19 Financial Environment or international banks or financial institutions); is not subject to additional withholding income tax; or is subject to an additional withholding income tax rate lower than 35% under a tax treaty or under domestic law. If the debt-to-equity ratio exceeds a 3:1 threshold, the excess interest is subject to an additional 35% tax payable by the borrower (reduced by any withholding tax paid on interest). Certain third party financing is deemed to be related party financing. Stamp Tax Foreign loans are subject to a stamp tax, regardless of documentation. The rate is 0.066% for each month or fraction thereof, between disbursement and maturity, capped at 0.8%. Loans payable on demand or without maturity are subject to a 0.332% tax. Capital Duty/Municipal Licence Fee While there is no taxable event upon the incorporation of a company, business entities must pay an annual municipal license fee. The fee ranges from 0.25% to 0.5% on tax equity, up to a maximum of approximately USD 500,000 (the cap varies in line with inflation and the exchange rate). Cash Pooling There are no specific tax rules for cash pooling arrangements. Sales Taxes/VAT VAT at the rate of 19% is generally charged on goods and on certain services and other transactions. Certain items are zero-rated or exempt. Imports are subject to VAT. Exports are zero rated for VAT purposes. Professional services rendered by employees or independent consultants are not subject to VAT. Alcohol, tobacco and some luxury items are subject to additional sales taxes ranging from 10% to 50%. Registration for VAT purposes is mandatory. A VAT return must be filed monthly, and the tax paid at that time. Financial Transactions / Banking Services Tax There are no financial services / banking services taxes in Chile. Documented monetary credit operations are subject to stamp tax; foreign loans are subject to stamp tax whether documented or not (see stamp tax section). Cross-border financial transactions above USD 10,000 must comply with Chile s Foreign Exchange 19

20 Financial Environment Regulations, which basically require undertaking the operation through a commercial bank, when funds cross the Chilean border, and informing the Central Bank of Chile of all transactions. Capital Gains Tax Capital gains generally are taxed as ordinary income. Capital gains on the disposal of certain assets may be exempt from tax, if certain requirements are met. Payroll and Social Security Taxes There is no payroll tax payable by employers. The employer must make the following contributions for social security: QQ QQ QQ QQ a monthly 0.95% premium on remuneration (capped at a floating amount) labor-related accident insurance; additional contributions that vary according to the risk of the employment activity, at rates up to a maximum of 3.4%; a 2.4% compulsory unemployment insurance on remuneration subject to the floating cap (3% for fixed-term contracts); and a 1.41% premium for life and disability insurance. Self-employed persons (professionals, directors of corporations, professional partnerships and others) and employees are subject to second category income tax charged at progressive rates that range from 0% to 40%. For employees, the tax is withheld by the employer. An employee whose entire income comprises employment income from one employer is not required to file a tax return, since the tax liability is satisfied by the second category income tax paid. Where an individual has other income and is required to submit a tax return, the second category income tax paid is credited against the final tax liability on the total income. All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlights 2018 ( 20

21 Cash Management Cash Management Banking System Banking Regulation Banking Supervision Central bank The Central Bank of Chile (Banco Central de Chile BCCH) is an autonomous institution and carries out its duties in accordance with the duties and responsibilities laid out in the 1989 Basic Constitutional Act of the Central Bank of Chile and its amendments, and Sections 97 and 98 of Chapter XII of the Political Constitution of The BCCH is responsible for interest rate and foreign exchange policy as well as the management of exchange controls and international reserves. Other banking supervision bodies The main regulatory body for Chile s financial sector is the Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras de Chile SBIF). However, the securities and insurance markets are overseen by the Chilean Securities and Insurance Supervisor (Superintendencia de Valores y Seguros SVS). As well as representing the views of its members on legislation and regulatory matters, the Chilean Association of Banks and Financial Institutions (Asociación de Bancos e Instituciones Financieras de Chile) is responsible for managing the National Banking Clearing Chamber (Cámara de Compensación Bancaria Nacional). Central Bank Reporting General Quarterly balance of payments data reports include transactions between residents and nonresidents as well as transactions on resident accounts held abroad. What transactions listed All capital transactions effected by residents in foreign currency and since September 2004 foreign credit transactions denominated in CLP, but payable in foreign currency, must be reported. Reporting is also required for import- and export-related payments above USD 50 million per annum. Whom responsible Banks are required to report foreign exchange transactions to the central bank. Companies have the legal obligation to provide the central bank with any statistical information required. 21

22 Cash Management Additional reporting for liquidity management schemes There are no additional reporting requirements. Exchange Controls Exchange structure The exchange rate of Chile s official currency, the Chilean peso (CLP), is free floating. Foreign exchange policy is formulated by the central bank, which also has responsibility for managing exchange controls. Chile has gradually dismantled its exchange control regime but a number of regulations remain in place relating to cross-border transactions. For example, financial credit operations to non-residents by resident institutional investors, insurance companies and pension funds as well as foreign investments by commercial banks and institutional investors are subject to prudential regulation. As a member of the Latin America Integration Association (LAIA), Chile has regional payment and clearing arrangements with Argentina, Bolivia, Brazil, Colombia, Mexico, Ecuador, Paraguay, the Dominican Republic, Venezuela, Uruguay and Peru. Chile is an associate member of Mercosur, the South American common market formed by Argentina, Brazil, Paraguay and Uruguay. Venezuela, which joined Mercosur in 2012, was temporarily suspended from the bloc in December 2016 for failing to incorporate key rules on trade and human rights into national law. In August 2017, Mercosur suspended Venezuela indefinitely for violating the bloc s democratic principles. Exchange tax There is no tax on foreign exchange transactions. Exchange subsidy There is no exchange subsidy. Forward foreign exchange market Foreign exchange can be traded on a forward basis. Capital flows All payments abroad must be made using foreign currency. There are no restrictions on direct investment or transactions involving personal capital. Purchase of land in border zones by non resident businesses is not allowed if they are based in a neighboring country or are more than 40% owned by citizens of these countries. Approval is required for foreign investment in public sector industries such as media and sea transport from the Foreign Investment Committee as well as all investments exceeding USD 5 million. Capital transactions above USD 10,000 by non-residents, and all capital transactions effected on residents accounts abroad, must be processed via Chile s formal exchange market, which consists of banks and financial institutions authorized by the central bank. 22

23 Cash Management Loans, interest and repayments No exchange controls apply to loans, but resident insurance companies and pension funds may not provide credit to non-resident trade partners. Borrowing by non-residents requires a Chilean tax number (RUT) and a financial statement report. Loans originating abroad are subject to a 35% withholding tax. A 4% rate is levied on loans granted by foreign banks or financial institutions. A 3.6% reserve requirement is applied to loans from abroad with a maximum maturity of one year. Royalties and other fees Royalty fees paid abroad are subject to a 30% withholding tax, but there is a 4% expense deduction if the tax tariff in the beneficiary s country is below 30%. A 20% withholding tax is charged on payments to non-resident companies abroad for technical services, but this is recoverable in annual tax declarations. The remittance of payments related to patents and trademarks requires approval from the Department of Industrial Property. Royalty and fee payment licenses authorized by the central bank are required for tax deduction purposes. Profit remittance There are no restrictions on profit remittances. These may be settled annually or quarterly. Dividend remittances from abroad are subject to a 35% corporate income tax; a 10% withholding tax is levied on dividends from investment funds located abroad. There are no repatriation requirements for the proceeds of exports, invisible transactions or for current transfers. Bank Account Rules A company has resident status if it is incorporated in Chile. Residents may open local and foreign currency accounts domestically and abroad, but certification of domicile is required to open a foreign currency account at a commercial bank. Non-residents may also open local and foreign currency accounts in Chile, provided they have the required certificates of domiciliation and a tax identification number. Resident and non-resident accounts in CLP are convertible into foreign currency. Banks are free to offer interest on current accounts and short-term deposit accounts, but the practice is not widespread as restrictions on the payment of interest were only lifted in Anti-money Laundering and Counter-terrorist Financing QQ Chile has implemented anti-money and counter-terrorist financing laundering legislation, (Law No of 2005; Law No of 2003; Law No of 2003, Law of August 2006 and Law No of February 2015). Chile has also implemented counter-terrorist legislation (Law No ; of 1984 and amendments). 23

24 Cash Management QQ QQ Chile is a member of the Financial Action Task Force of Latin America (GAFILAT ) (formerly known as South American Financial Action Task Force GAFISUD) and the Organisation of American States/Inter-American Drug Abuse Control Commission (OAS/CICAD). Chile has established a financial intelligence unit (FIU), Unidad de Análisis Financiero (UAF), which is a member of the Egmont Group. The UAF is a separate entity within the Ministry of Finance. QQ QQ QQ QQ QQ Account opening procedures require formal identification of the account holder and corporate customers have to be scrutinized. At present, however, savings accounts are not subject to the same compliance standards. Financial institutions in the broadest sense are required to report suspicious or unusual transactions to the UAF. All cash transactions exceeding USD 10,000 must be recorded and submitted to the UAF on request or at least once per year. Since October 2005, all banks have been required to file these reports electronically and on a monthly basis. All physical cross-border transactions exceeding USD 10,000 must be reported to the customs authorities. Records must be kept for at least five years. Data as at March Banking Sector Structure Major Domestic Banks Bank Total assets (USD million) April 30, 2018 Banco del Estado de Chile 62,089 Banco Santander Chile 60,392 Banco de Crédito e Inversiones 56,575 Banco de Chile 54,808 Itaú CorpBanca 47,737 Banco Bilbao Vizcaya Argentaria (BBVA) Chile 23,198 Scotiabank Chile 22,978 Source: Superintendencia de Bancos e Instituciones Financieras de Chile. Overall Trend Chile has a stable and well-capitalized banking system that has attracted considerable foreign investment. As well as nine domestic banks and seven cooperative banks, the Chilean banking 24

25 Cash Management system includes 11 foreign-owned institutions, either branches of foreign banks or foreigncontrolled, which control around 43% of the country s banking sector assets. Chile s banking system is also relatively centralized, with the three largest banks Banco Santander Chile, Banco del Estado de Chile (BancoEstado) and Banco de de Crédito e Inversiones accounting for around 48% of total banking assets in April However, sustained economic growth over recent years has led to the emergence of a number of niche banks that specialize in consumer finance. In August 2013, CorpBanca completed the acquisition of Colombia s seventh largest bank Helm Bank through its local subsidiary CorpBanca Colombia. The deal, which also included Helm Bank s subsidiaries in Panama and the Cayman Islands, was valued at USD 1.32 billion. CorpBanca has since merged its Colombian subsidiary with Helm Bank, creating Colombia s fifth largest bank. In January 2014, CorpBanca and Brazil s Itaú Unibanco reached a deal to merge CorpBanca with Banco Itaú Chile in a stock-for-stock transaction. Despite opposition from minority shareholders, the merger closed in April 2016, when the bank changed its name to Itaú Corpbanca. Itaú Unibanco has become the new bank s largest shareholder with a 33.58% stake. In December 2014, Brazil s investment bank Banco BTG Pactual was awarded a permanent banking license to operate in Chile. In January 2015, the bank launched operations in the country under the name Banco BTG Pactual Chile. In November 2015, Chilean holding company Inversiones La Construcción (ILC) completed an agreement with Baninter to buy a 50.1% stake in its local bank Banco Internacional. Dutch bank Rabobank has completed the process of turning its Chilean subsidiary into a non-bank financial institution. In April 2017, the SBIF approved the dissolution of Rabobank Chile. In December 2016, the Chilean banking regulator SBIF authorized Scotiabank Chile to acquire the remaining assets and liabilities of local small niche bank Banco Paris. Banco Paris, which was a subsidiary of local retail group Cencosud, has been dissolved and liquidated. In February 2017, the SBIF approved the dissolution of scandal-hit Banco Penta. The bank has since been dissolved and liquidated. In June 2016, China Construction Bank Corporation (CCB) opened a branch in Chile, after receiving the final authorization to launch operations in the country in the previous month. The branch is the first clearing bank for transactions in Chinese renminbi (RMB) in South America. In August 2017, Spain s BBVA announced plans to sell its 68% stake in its Chilean retail bank BBVA Chile to Canada s Bank of Nova Scotia (Scotiabank). In December 2017, BBVA accepted Scotiabank s offer of USD 2.2 billion for its Chilean subsidiary and, in June 2018, the operation received regulatory approvals. Scotiabank plans to merge BBVA Chile with its existing operations in Chile by September BBVA also has a consumer finance unit in Chile. 25

26 Cash Management Payment Systems Overview Chile has four clearing systems for payment instruments. High-value, urgent credit transfers can be processed for same-day value by the Sistema de Liquidación Bruta en Tiempo Real (LBTR), a real-time gross settlement system established and operated by the central bank since Alternatively, high-value, urgent credit transfers can also be cleared via Cámara de Compensación de Pagos de Alto Valor (CCAV), Combanc s bank-owned net-settlement system for same-day value. Low-value credit transfers and direct debits are cleared by the Centro de Compensación Automatizado (CCA), a bank-owned electronic clearing house that has been in operation since The National Clearinghouse for Checks and other Documents in Local Currency (Cámara de Compensación de Cheques y Otros Documentos en Moneda Nacional) was established by the Chilean Association of Banks and Financial Institutions (Asociación de Bancos e Instituciones Financieros de Chile) for electronic processing of checks and other paper-based instruments denominated in CLP. 26

27 Cash Management High-value Name of system Settlement type Settlement cycle Links to other systems Sistema de Liquidación Bruta en Tiempo Real (LBTR) Real-time gross settlement Transactions are settled for same-day value with immediate finality. Chile s other clearing systems link to LBTR for final settlement. Payments processed Currency of payments processed Value and other limits to processing Operating hours Urgent, high-value, electronic credit transfers, including obligations arising from Chile s other clearing systems CLP No value limits 09:00 18:30 Mon Fri System holidays 2018 July 2, 16, August 15, September 17 19, October 15, November 1, 2, December 8, 25, January 1, April 19, 20, May 1, 21, June 29, July 16, August 15, September 18, 19, October 12, 31, November 1, December 8, 25, January 1, April 10, 11, May 1, 21, June 29, July 16, August 15, September 18, 19, October 12, 31, November 1, December 8, 25, 31 Cut-off time 17:30 Participants Access to system Future developments 22 direct participants. Participation is mandatory for banks and clearing houses that hold an account at the central bank. Via SWIFT FIN Copy NA 27

28 Cash Management Name of system Settlement type Settlement cycle Links to other systems Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor (CCAV) - Combanc Net settlement Funds are cleared for same-day value. Links to LBTR for final settlement. Payments processed Currency of payments processed Value and other limits to processing Operating hours Urgent, high-value, electronic credit transfers CLP No value limits 09:00 17:30 Mon Fri System holidays 2018 July 2, 16, August 15, September 17 19, October 15, November 1, 2, December 8, 25, January 1, April 19, 20, May 1, 21, June 29, July 16, August 15, September 18, 19, October 12, 31, November 1, December 8, 25, January 1, April 10, 11, May 1, 21, June 29, July 16, August 15, September 18, 19, October 12, 31, November 1, December 8, 25, 31 Cut-off time 16:30 Participants Access to system Future developments 16 participant banks Via SWIFT NA 28